The Night That Is Upon Us And The Dawn Of A New Era

A speech by Hugo Salinas Price at the inaugural ceremony of the Fourth Convention of the Association of Mining Engineers, held in the city of Durango, State of Durango, Mexico, on August 25, 2016.

At what point in History does humanity find itself? Where are we? In the course of the past centuries, the study of the physical sciences, born in the 16th Century when the Englishman Francis Bacon established the “Scientific Method”, has had such enormous success and has so greatly influenced humanity, that Science has become a materialist world-religion.

The central problem of our times is that official economists attempt to apply the “Scientific Method” when designing economic policies for governments, and this method is not applicable to human activity. The “Scientific Method” cannot be applied to social concerns, because physical matter and human beings behave in totally different ways. Matter cannot choose, and human beings do choose their behavior. So, while action applied to matter produces predictable results, action applied to human beings must consider the fact that human being do choose, they do have options, and thus their behavior cannot be predicted successfully, cannot be quantified nor expressed correctly in equations. The world’s economists ignore this fundamental fact, and so they formulate economic plans for the State that always turn out as counter-productive, because their plans produce results that are always quite the opposite of what they expected.

Nevertheless, the influence of the physical sciences is so great, that a false economic science is taught at all the important universities of the world; this false science attempts to apply the methodology of the physical sciences to the study of Economics and the formulation of economic policies. An enormous mistake that has sunk humanity into the dark night that covers us!

Thoroughly confused by the false economic science that prevails over a benighted humanity, the financial systems of the world – all based upon the US Dollar in the last analysis – have created gigantic quantities of debt that are shaking the most important banks of the world and threatening their insolvency. Insolvency would mean significant losses for creditors of the banks, and depositors in banks are in fact creditors. Thus, the fear of banking insolvency has caused a rise in the price of gold that parallels the present crisis in the world’s financial system. The public is feeling growing concern regarding the safety of their bank deposits, the value of equity assets and regarding the liquidity of corporate and government bonds that represent world debt.

At present we see that the combined might of Russia and China will have to force the US to give up its policy of projecting military might around the world. The US will have to stop dreaming of world domination.

As US military influence around the world begins to recede, more questions will be asked about the convenience of the world’s monetary system based on the fiat dollar, which up to now has been omnipotent.

Therefore, we shall begin to see more discussion regarding a return of the gold standard, the only monetary system that does not require military force for its implementation, because gold is money with substance, politically neutral and therefore conducive to peace among nations.

We do not know just how the world will return to the use of gold money; it will possibly take place in the midst of disorder. In whatever way it takes place, the return to gold implies very painful changes in all the national economies of the world, because the use of gold will put heavy locks on the ability of governments everywhere, to run into debt. And when governments are no longer able to take on debt in ever-increasing quantities, the world as we have known it will have vanished.

It is important to notice the very close connection that has existed in our times, between the behavior of humanity in every sense, and the world’s monetary policy since it abandoned the gold standard, as a result of the excessive financial cost of the First World War in 1914; that war broke out in August, and most people in Europe thought it would not last beyond December, because the governments at war would run out of money. However, the belligerent parties unexpectedly resorted to printing paper money to pay expenses, and that was the beginning of the end for the gold standard.

In the next few years, the disappearance of the gold standard had relatively modest effects, because the world’s Central Banks had to hold gold as reserves, and this exercised a brake upon their expansion of credit.

However, on August 15, 1971, when the US unilaterally defaulted upon the Bretton Woods Agreements of 1944, holding gold ceased to be important for the Central Banks. What became necessary and important, was for them to hold dollars – irredeemable in gold – as reserves.

At that moment, American policy was liberated from the need to restrict credit in dollars for fear of losing gold to its creditors. Consequently, the ensuing unrestricted expansion of credit on the part of the US led to an orgy of the world’s expansion of credit, that is to say, of debt, which today is expressed in inconceivably enormous numbers.

The expansion of debt on the one hand, means on the other hand the expansion of money – paper or digital money – in corresponding quantities in the whole world.

Thus, the fact is that humanity has lived, for the past 45 years, in a state of drunkenness based on debt.

The governments of the world have turned into wild spenders, because there has been no limit to their ability to go into debt, an ability that was strictly limited under the gold standard, and at least partially limited under the Bretton Woods Agreements, while they lasted.

The ability to go into debt affects the behavior of the human being. A habitual debtor spends until he goes into full bankruptcy. His behavior in the meantime becomes disorderly and licentious.

The governments of the world, in the past 45 years, have behaved like habitual debtors, and their unlimited spending has changed the behavior of humanity. There is disorder in personal behavior; a shameless flaunting of vice; family life has broken down because the father, who used to be the support of the family, has lost his authority: his wife now has the opportunity of leaving the home to work and she has her own income; the children can ignore paternal authority and can live idle at home, instead of having to go out to work. In the world today, there is no longer any social consensus regarding the appropriate way to dress – a clear manifestation of the social transformation suffered by humanity in the last 45 years. How many hundreds of millions of youngsters have their own costly cell-phones? How many hundreds of millions of autos jam the streets of the cities of the world? How many millions of electronic screens in homes keep humanity in hypnotic state? The ample credit that is offered to acquire these things originates in the capacity of governments to go into debt and rain money upon their populations.

Consider also, the boom in world tourism. Millions of tourists wander idly around the world every year. Is the world really much wealthier than it was in 1971? No, the world is not so much wealthier; we have the impression that the world is far wealthier than it was fifty years ago, and that economic scarcity is a thing of the past, because all the governments of the world borrow continuously, and with their policy of spending they in fact subsidize leisure – and no one thinks about the debt that is piling up.

Government policies of social spending, which have plenty of political support, are funded by the ever-increasing indebtedness by governments and they have the effect of reducing individual responsibility. In other times, personal charity alleviated the suffering of the less fortunate in this life. Today, government spending aims to keep everyone comfortable.

The fate of the habitual debtor is bankruptcy. The same outcome inevitably awaits our world.

For uncounted centuries, humanity lived in fear of hunger. God said to Adam when he expelled him from Paradise: “You shall earn your bread with the sweat of your brow.” During the last half-century, humanity has been rapidly losing the fear of hunger, because governments that spend borrowed money have offered all sorts of monetary assistance so that people will not have to earn their bread with the sweat of the brow.

The day is approaching when we are going to wake up with an inevitable world financial crack. What are those accustomed to living off of government spending, either directly or indirectly (which includes practically all of us) going to do? Only the aborigines of the Amazon, of New Guinea, or of Borneo are going to live through that period without suffering. Unfortunately, a good number of the more than seven billion human beings on the planet will feel pain or even suffer death.

World debt is documented in Bonds, which are contracts that promise payment of a debt. With regard to the wealthy that hold large quantities of Bonds: when the crack arrives, their Bonds will become worthless pieces of paper. That is the nasty surprise that is coming for the wealthy.

The policies that could make of Mexico a strong and prosperous country, have been well-known for ages. A government that collects low taxes; a government that operates under a budget, without borrowing to increase its expenditures; a government that does not burden the population with excessive regulations; free trade; solid currency; legal safeguards for private property; public works of infrastructure limited to a government budget. Such was the policy, generally speaking, of our President Gustavo Diaz Ordaz (1964-1970). When his term in office ended, Mexico’s foreign debt was: $4 billion dollars, and our Central Bank, Banco de Mexico, held that amount in cash on its Balance Sheet.

It is hard to imagine that we shall ever again enjoy such a policy. Consequently, Mexicans are facing a rather somber future.

In view of the great chaos that the whole world will endure when the collapse in the value of the gigantic debt that hangs over the world takes place, I cannot do otherwise than recommend to all, the formation of private savings in gold and silver coins, since those metals have always been, throughout history, the lifesavers of those who possessed them.